From Economic Crisis to Global Conflict – The Consequences of Protectionism
Written by Julie Marie Winger Eriksen
During the 1930s, between the First and Second World Wars, the world faced a severe economic crisis. The Great Depression began with the Wall Street Crash of 1929 in New York, which triggered a widespread economic downturn and led to a significant rise in unemployment across many countries worldwide.
The policies implemented by several countries in the 1930s also worsened the economic situation. To counter capital flight and defend official exchange rates under the gold standard, many central banks kept interest rates high. However, this hindered efforts to revive economic activity.
In an effort to protect their national economies, many countries raised tariffs and restricted imports. The Smoot-Hawley Tariff Act, enacted in the United States in 1930, increased tariffs on thousands of imported goods with the goal of protecting American industries and jobs. However, the policy backfired. In response, many other nations imposed their own tariffs, leading to a significant decline in global trade and worsening the economic challenges of the Great Depression. The act is often cited as a contributing factor to the deepening of the global economic downturn during that period. After nearly a decade of enduring economic hardships, the Second World War broke out in 1939.
On January 20, Donald Trump was inaugurated as the 47th president of the United States. In just two months in office, he has issued executive orders at a rapid pace. His approach to trade policy, characterized by both threats of tariffs and their actual implementation against key trading partners, Canada, China, Mexico, and the EU, has triggered a dangerous cycle of escalating trade tensions, with retaliatory measures further disrupting global commerce.
Kjersti Haugland, Chief Economist at DNB Markets, stated in an interview with NRK that the trade war has clearly begun, and that the tariff rates currently imposed by the U.S. are the highest seen since the 1940s. Ole Gunnar Austvik, Professor of Political Economy at Handelshøgskolen Innlandet, told NRK that when countries cease trading and impose tariffs, they forfeit the peace-promoting benefits that trade traditionally provides.
Free trade plays a crucial role in promoting peace by fostering economic interdependence among nations, thereby reducing the likelihood of conflict. As countries become more reliant on each other for goods and services, the incentive for cooperation increases, making war a less attractive option. Additionally, the prosperity generated by free trade helps stabilize economies, reducing the potential for internal unrest and external aggression. Historical evidence shows that nations with strong trade ties are less prone to war, highlighting how economic integration can support lasting peace.
